Essays on international trade, technology and inequality

This dissertation attempts to contribute to our understanding of the impact of international trade and investment on income growth and distribution in developing countries. For that purpose I analyze the trade and capital account liberalization that took place during the 1990's in Argentina focusing on its impact on technology adoption and the relative demand for skilled workers. The first chapter analyzes the causes of the increase in the relative demand for skill. Most research on this topic focuses on two alternative causes: trade or skill-biased technical change. Several empirical studies in both developed and developing countries document increases in skill intensity within all sectors, favoring the technological change explanation over trade. Instead, I present and test a model where bilateral trade liberalization increases exporting revenues inducing more firms to enter the export market and to adopt skilled-biased new technologies. I find that the increase in the relative demand of skilled labor does not come from labor reallocation across sectors or firms but from skill upgrading within firms. Firms that upgrade technology faster also upgrade skill faster. Finally, firms entering the export market after liberalization become more skill and technology-intensive than non exporters. The second chapter investigates whether bilateral trade liberalization can cause technology upgrading or the better performance of exporters is fully explained by the selection of the best firms into exporting. Empirical identification of the causal effect of trade on technology is based on differential reductions across industries in Brazil's tariffs during the launching of MERCOSUR. I find that Argentinean firms in industries where Brazil's tariffs fell more were more likely to enter the export market and increased technology intensity faster. The third chapter analyzes the impact of capital account liberalization on the financing and ownership structure of Argentinean firms. The empirical findings are consistent with credit constraints causing capital flows from developed countries to take the form of FDI instead of being channeled through the credit market. Foreign-owned firms are concentrated in sectors with high external finance dependence, receive funds from their parental firms and increase capital and technology intensity faster than domestically-owned firms in the same industry.